Knowledge-Based Capital and Productivity Divergence

Abstract

Understanding the causes of the slowdown in aggregate productivity growth is key to maintaining the competitiveness of advanced economies and ensuring long-term economic prosperity. This paper is the first to provide evidence that investment in Knowledge-Based Capital (KBC), despite having a positive effect on productivity at the micro level, is a driver of the weak productivity performance at the aggregate level, by accentuating divergence between a group of "frontier" firms and the rest of the economy. Using detailed firm-level administrative data for Germany, we find evidence that the effect of KBC on productivity is heterogeneous across firms within industries: this effect is 3 times larger for firms in the top quintile of the KBC distribution compared to firms in the bottom quintile of the KBC distribution. We document the existence of divergence in productivity growth between top KBC users and the rest of firms at the industry level, and find that industries where this gap is larger are also those industries where the heterogeneity in the effect of KBC is highest and where average productivity growth was lower. The evidence hence supports the view that the use of KBC plays a role in explaining weak productivity growth, by accentuating differences between firms.

Key Factors Behind Productivity Trends in EU Countries

“…57 The divergence in growth rates is taken as a proxy for the speed of technology diffusion across firms. Several country-specific studies reach similar conclusions (De Mulder and Godefroid, 2018;Lotti and Sette, 2019;Cette et al, 2018;Heuvelen et al, 2018;Le Mouel and Schiersch, 2020;Bersch et al, 2019;Decker et al, 2016). See Box 5 below for an analysis of the Belgian case.…”

“…Other studies examine the importance of global (e.g., Andrews et al 2015, 2019or Bahar 2018 or national (e.g., De Mulder and Godefroid, 2018;Lotti and Sette, 2019;Cette et al, 2018;Heuvelen et al, 2018;Le Mouel and Schiersch, 2020;Decker et al, 2016) productivity frontiers. Annex 7: Meta-analysis A.7.1 Data and meta-analysis methodology…”

A lasting crisis affects R&D decisions of smaller firms: the Greek experience

“…An additional aspect may be related to the fact that larger firms have already made some significant investments in R&D in either tangible or intangibles assets (see Le Mouel & Schiersch, 2020). Hence aborting such a plan maybe not an option for them due to sunk costs.…”

Broadband and Productivity: Structural Estimates for Germany

“…Corrado et al, 2007;Syverson, 2011;Foster et al, 2016;Bartelsman and Wolf, 2017;Foster et al, 2018). The literature also shows that the relevance of various drivers of productivity, such as R&D, IT and software, organizational capital etc., and their effect on TFP varies substantially between industries (Arrighetti et al, 2014;Ugur et al, 2016;Le Mouel and Schiersch, 2020). We therefore expect that such heterogeneity between industries should also be observed with regard to the effects of broadband.…”

“…8 Interested readers are referred to Le Mouel and Schiersch (2020), Gornig and Schiersch (2019), Richter andSchiersch (2017), Falck et al (2014) , Koch (2007), andFritsch et al (2004). Rhine-Westphalia.…”